November 15 marks probably the most important date of 2020 and potentially of the last couple of years. On this day, 15 Asian states signed the Regional Comprehensive Economic Partnership (RCEP), thus, creating the biggest free-trade zone in history – in unusual fashion via a video conference, due to the globally raging Corona pandemic. The RCEP accounts for around 30% of the world economy and affects also around 30% of the global population. Although its depth and scope are not (yet) on the level of the European Economic Area (EEA), it is reminiscent of early stages of the European integration process, since it covers a great deal of economic areas. From trade in goods, rules of origin, trade in services, e-commerce and investment facilitation, all the way to settlement procedures, custom rules, quality standards, government procurement and many more areas, the RCEP is a sophisticated legal construct that will have lasting impact on the global economy and development.
The free-trade agreement (FTA), that has been negotiated over the past 8 years, was finally established among 15 Asian nations, namely: Brunei, Cambodia, New Zealand, Indonesia, Laos, China, Malaysia, Myanmar, the Philippines, Japan, Singapore, Thailand, Viet Nam, Australia and South Korea. As mentioned before, it constitutes a comprehensive framework for long-term economic cooperation and growth, while promoting continuous economic integration through a multi-paced approach. Since there are stark differences in the economic power and structure between the signatory states, the latter is especially important, in order to create a fair and efficient environment for all member states. Accordingly, the provisions of the agreement reflect a great deal of consideration for the states with lower economic outputs, such as Brunei, Laos or Viet Nam.
Summarising the main aspects of the agreement, the states aim to facilitate traditional trade by reducing barriers to trade and harmonising many economic areas. Not only are tariffs and customs to be reduced, but also quality and environmental standards shall be harmonised in an attempt to not exclusively improve trade quantitatively. Further, the agreement stresses at various points its emphasis on cooperation and mutual support, in order to improve these standards and procedures in the future. Next to the traditional areas of FTAs, like trade in goods and services, trade remedies and rules of origin, the RCEP is also an innovative and forward-looking agreement that seeks to enhance e-commerce through comprehensive cooperation. Asian states like China, Japan and South Korea, already, are world leaders in e-commerce and, apparently, they seek to further solidify their role in this field, while letting smaller nations around them profit, either. Another main aspect is the field of investment. Here, the signatories seek to facilitate foreign direct investment (FDI) through lowering transaction cost for market entry and trade, as well as improving what is coined in the agreement as investor aftercare, which entails mechanisms for dispute settlements and investor rights protection.
What does that mean for the rest of the world? As Western readers might have noticed, none of the large media outlets published anything on this agreement on their front pages, despite it being the biggest international trade agreement ever. It is not surprising that Western nations are not super enthusiastic about an Asian FTA. With China and Japan, already, being two of the world’s biggest economies, their economic potential will significantly rise with the opening of many markets for their products and their investments. While Japan has proven to be a reliable political and economic ally for the West, China is perceived to be a significant competitor in both arenas; even to such an extent that Westerners label China a threat. Of course, none of the Asian RCEP states are threatening any non-RCEP states. Just as every state, the governments of the RCEP states are entrusted with their people’s mandate and are burdened with the responsibility to achieve, among other things, wealth and prosperity for their respective nation. With the RCEP, the signatory states are doing just that. The agreement enables various businesses to internationally expand more easily, which creates jobs and fosters innovation – something that some of the member states desperately need. Moreover, with the increased market opportunities, the investment opportunities rise accordingly. Overall, the RCEP will help the smaller member states to grow and have more stable economies, due to the predictability and reliability provided by the agreement. The greater economies can solidify their political influence and economic power through the agreement and further develop the financial markets in the region.
When thinking about the agreement in political terms, it is clear that rising power on one side means the reduction of the equal amount of power elsewhere – and this is also why Westerners are not supportive of this free-trade zone. The RCEP provides a reliable basis for longer-term growth for all signatories and with the increasing success of the smaller nations, the bigger nations that will stock up their investments in those states will also profit exponentially. Further, because trade becomes cheaper and, hence, more attractive within the zone, China will be able to solidify its predominance in those markets, which provides an additional safeguard for growth and also reduces economic volatility. Especially, the provisions on e-commerce and investment will help China to potentially become a global leader in those areas, since many other FTAs and economic cooperations neglect the e-commerce aspect. From an investment perspective, it is important to note that the global monetary flows already increasingly focus on Asian markets, due to their innovativeness. A more balanced global investment landscape would also help Western stock exchange companies to grow by providing new incentives for growth and innovativeness through higher competition. Further, due to the high concentration of investments in the West, the global monetary markets are heavily dependent on the Western markets, which is also why most markets are so vulnerable to external shocks – let us just think about the 2007 financial crisis.
All this is alarming in the eyes of European and North American states. For them there are two potential scenarios that they do not like: first, the economic expansion of China in the Asian Tigers reduces the attractiveness of other countries for potential business and investment, which means that the European and North American states lose footing in important markets of the future. Second, they believe that China will use the increased economic strength to also bolster their political role within Asia and elsewhere and, thus, becoming a stronger force at the diplomatic table, as well. From an ethical standpoint, these are certainly reprehensible stances towards the RCEP. Eventually, a stronger China is not a bad thing per se. By its sheer size, it already counter-weighs some of the Western political power and acts as some kind of boundary for economic and political expansion of those political actors.
In the end, this FTA has the potential to improve the lives of almost 1/3 of the world’s population and it should be supported globally. In comparison, the world readily and happily accepted the establishment of the EEA and the North American Free Trade Agreement (NAFTA), which enabled European and North American countries to vastly increase their economic and political potential. Now, it is time for some of the Asian countries to do the same. With the signing of this historic agreement, the world has a chance to become more balanced politically by moving towards a more multipolar international order – something that is highly desirable from an international relations point of view. It can be said that the Regional Comprehensive Economic Partnership is a big reason for hope, because it holds so much potential for many underdeveloped regions, but also for the economic and political balance globally.